Correlation Between BorgWarner and CDK Global

Can any of the company-specific risk be diversified away by investing in both BorgWarner and CDK Global at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BorgWarner and CDK Global into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BorgWarner and CDK Global Holdings, you can compare the effects of market volatilities on BorgWarner and CDK Global and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BorgWarner with a short position of CDK Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of BorgWarner and CDK Global.

Diversification Opportunities for BorgWarner and CDK Global

0.5

Correlation Coefficient

BorgWarner  CDK Global

Very weak diversification

The 3 months correlation between BorgWarner and CDK is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding BorgWarner and CDK Global Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDK Global Holdings and BorgWarner is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BorgWarner are associated (or correlated) with CDK Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDK Global Holdings has no effect on the direction of BorgWarner i.e., BorgWarner and CDK Global go up and down completely randomly.

Pair Corralation between BorgWarner and CDK Global

Considering the 90-day investment horizon BorgWarner is expected to generate 11.48 times more return on investment than CDK Global. However, BorgWarner is 11.48 times more volatile than CDK Global Holdings. It trades about 0.02 of its potential returns per unit of risk. CDK Global Holdings is currently generating about 0.23 per unit of risk. If you would invest  3,200  in BorgWarner on February 3, 2024 and sell it today you would earn a total of  363.00  from holding BorgWarner or generate 11.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	8.69%
Values	Daily Returns

BorgWarner  vs.  CDK Global Holdings

BorgWarner

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BorgWarner are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, BorgWarner may actually be approaching a critical reversion point that can send shares even higher in June 2024.

CDK Global Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CDK Global Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, CDK Global is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with BorgWarner and CDK Global

The main advantage of trading using opposite BorgWarner and CDK Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BorgWarner position performs unexpectedly, CDK Global can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in CDK Global will offset losses from the drop in CDK Global's long position.

The idea behind BorgWarner and CDK Global Holdings pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..